FDI Regime Overview The current EU FDI Regulation (the Regulation), which entered into force on October 11, 2020, created a mechanism for coordinating national screening of inward investments by non-EU buyers, while giving the Commission an important new central advisory role. The enactment of the Regulation coincided with the second wave of the COVID-19 pandemic, which led multiple Member States to enhance existing FDI screening regimes and/or implement new mechanisms. The recent geopolitical turmoil has reinforced the emphasis on screening inbound FDI. These developments should be considered in their wider policy context, notably the EU Industrial Strategy launched at the behest of Member States (with the Franco-German axis leading the charge) following the Commission’s veto of the Siemens/Alstom merger. In particular, Member States have pushed to protect the EU’s industrial base. This feeds into the wider EU policy objective of achieving “open strategic autonomy” – a concept that “emphasizes the EU’s ability to make its own choices and shape the world around it through leadership and engagement, reflecting its strategic interests and values.” In turn, investors need to navigate a patchwork of Member State FDI regimes that may complicate transaction planning and potentially lengthen transaction timelines. The New Regulation addresses this need to achieve some degree of procedural and substantive convergence across the EU bloc, while leaving the exclusive responsibility of the screening decisions with the Member States. Although the Regulation itself does not require Member States to screen FDI, the Commission has actively encouraged Member States to set up such regimes and make use of the existing rules. As of May 2026, all Member States have FDI screening regimes in place. When the Regulation entered into force, the existing Member States’ systems varied widely in their scope and level of enforcement, and countries did not coordinate their approaches, even where a particular investment affected
multiple countries. The Regulation tries to address this patchwork by specifying several characteristics that existing and new screening regulations and mechanisms must meet. It sets out a non-exhaustive list of sensitive sectors Member States may wish to target in their FDI regimes, such as aerospace, artificial intelligence, communications, defense, energy, financial, media, semiconductors and transport. The Regulation also provides guidance on the types of factors Member States may consider in their determination of whether an investment is likely to affect security or public order. These include an investor’s links to non-EU governments, involvement in activities affecting security or public order, and the risk it may be engaged in criminal or illegal activities. One of the key features of the Regulation is its introduction of a coordination mechanism. This has been achieved through two channels: (i) the facilitation of information sharing between Member States, including information on active cases; and (ii) a cooperation mechanism for the Commission and third-party Member States to provide their views and opinions to the Member State(s) screening the investment. Although the Commission and third-party Member States are able to participate in ongoing FDI reviews by providing opinions, they have no binding effect on the reviewing Member State. However, reviewing Member States must take account – and in certain circumstances the “utmost account” – of the Commission’s opinion. This is the case for target companies that receive significant EU funding or operate critical infrastructure (transport, energy and telecoms), produce critical technologies (artificial intelligence, robotics and semiconductors) or manufacture inputs needed for security or public order (cybersecurity, satellite, navigation, earth observation and defense). Nevertheless, different Member States could in theory adopt inconsistent decisions when screening the same transaction.
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FDI and National Security Review
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